Won Strengthens as Bank of Korea Extends Rate-Hike Cycle

The South Korean won climbed against the US dollar on Thursday after the Bank of Korea extended its interest-rate hiking cycle, lifting its benchmark rate by 25 basis points to 3%. The USD/KRW pair slipped roughly 0.3% to trade around 1,380, edging back toward an 11-month low for the pair and underscoring the currency's recent momentum.

The rate increase, which matched market expectations and followed a previous level of 2.75%, came even as inflationary pressure showed signs of cooling. Consumer prices rose 2.8% year-on-year in July, down from 3.2% in June, yet the reading remained above the central bank's 2% target, giving policymakers reason to keep tightening.

Alongside the rate decision, the Bank of Korea sharply raised its growth outlook for 2026 to 3.3%, up from an earlier estimate of 2.6%, while leaving its inflation forecast unchanged at 2.7%. The upgrade reflects the growing contribution of technology exports, particularly artificial intelligence-related demand, to the broader economy.

The won has been one of the best-performing currencies in Asia this year, gaining around 12% against the dollar since January. USD/KRW has fallen from roughly 1,560 in early June to below 1,380 currently, a move analysts at Societe Generale described as reflecting strong enthusiasm around the AI and semiconductor sectors, even as they noted the shift looks stretched.

Heavy capital inflows tied to South Korea's chip industry have reinforced the currency's strength. Dollar inflows linked to SK Hynix's American depositary receipts in July have recently been joined by sizeable share buyback programs from Samsung, worth roughly $80 billion, and SK Hynix, worth about $28 billion, both of which are expected to generate additional won conversion flows.

On the US side, the dollar found some support from steady inflation data, with the core Personal Consumption Expenditures price index holding at 3.3% year-on-year in July, matching forecasts and keeping the Federal Reserve's policy path largely unchanged.

With the Bank of Korea maintaining a hawkish tone and export-driven optimism continuing to attract foreign capital, analysts expect the won to retain its relative strength in the near term, even as policymakers weigh the balance between taming inflation and sustaining growth.